KKR Nears $1.8 Billion Oriental Brewery Deal

SEOUL (Reuters) – U.S. private equity firm Kohlberg Kravis Roberts & Co is finalizing an agreement to buy Anheuser-Busch InBev NV’s (INTB.BR) South Korean brewer Oriental Brewery Co (OB) for about $1.8 billion, sources familiar with the situation said.

The acquisition would give KKR a foray into major South Korean assets, where lower valuations are attracting private equity houses.

An OB official told Reuters on Monday that a deal would signed this week, which one source said on Sunday was expected to be worth about $1.8 billion.

“Our knowledge is that an agreement will be signed with KKR either on May 6 or 7,” the OB official said. “A group of KKR officials have recently toured OB plants,” he added. He declined to be named because he was not authorised to speak to the media.

Selling unlisted OB would give AB-InBev around a $1 billion profit. The world’s biggest brewer reportedly spent a combined 1.15 trillion won ($884 million) to secure full ownership of the No.2 beer maker in South Korea since 1998, when it first bought a stake.

AB-InBev is looking to sell non-core assets and repay debt. It had valued OB at more than $2 billion, according to bankers.

A Wall Street Journal report, citing unidentified people familiar with the matter, said about 45 percent of the purchase price would come from KKR, with much of the rest coming from leveraged loans and seller financing.

The Journal said AB InBev would provide $300 million worth of financing for the deal, citing one unnamed source.

Nomura Holdings, HSBC Holdings, JP Morgan Chase & Co and Standard Chartered would underwrite four-fifths of the leveraged loans needed for the deal, according to the online Journal story, which cited another unnamed source.

Anheuser-Busch and KKR declined to comment and representatives for the banks were not immediately available for comment.

PREFERRED BIDDER

KKR, which had $53 billion in assets under management as of end-2007, told Reuters last week it was in exclusive negotiations with AB-InBev.

It became the preferred bidder after competing against other private equity bidders MBK Partners LP and Affinity Equity Partners to buy OB, which controls 40 percent of South Korea’s 3.6 trillion won beer market.

KKR’s involvement was seen as positive for Oriental Brewery’s bigger rival, Hite Brewery (103150.KS), as it would not hurt its competitive position, unlike other potential suitors.

Hite Brewery, in which Lazard Asset Management LLC was the No.2 shareholder with a 13.6 percent stake in late March, commands 60 percent of South Korea’s oligopolistic market.

South Korean retail giant Lotte Group, which was widely considered a front-runner to buy OB, said recently it had not handed in a final offer.

Jin Yoo, a Goodmorning Shinhan Securities’ analyst, said there was still room for Lotte, led by Lotte Shopping (023530.KS), to step into the auction even after KKR sealed a contract with AB-InBev this week.

“It remains to be seen whether KKR can make a full payment of $1.8 billion, and what would Lotte do in the meantime,” he said. “It seems unlikely KKR will grow OB as aggressively as Lotte might do. It will want to raise OB’s profitability, before selling it in 3-5 years.”

With Goldman Sachs (GS.N) as an adviser, KKR has JPMorgan, Standard Chartered (STAN.L) and HSBC (HSBA.L) among its backers, as well as Calyon, ING Bank, Natixis and Nomura (8604.T), Reuters Basis Point reported earlier.

JPMorgan (JPM.N) and Deutsche Bank (DBKGn.DE) are running the sale. ($1=1301.4 Won) (Reporting by Kim Yeon-hee in Seoul, George Chen in Hong Kong, Jessica Hall in Philadelphia, Sinead Carew and Megan Davies in New York; Editing by Richard Chang and Dhara Ranasinghe)